How US-China Relations Affect Oil Prices
The recent summit between US President Joe Biden and Chinese President Xi Jinping in San Francisco was hailed as a success by both sides, as they agreed to cooperate on a range of issues, from climate change to trade to security. However, the underlying tensions and competition between the two superpowers remain, and they have significant implications for the global oil market.
The US and China are the world's largest oil consumers, accounting for about 40% of global demand. Their economic growth, trade policies, and geopolitical actions have a major impact on oil prices and supply. In this article, we will examine how the current state of US-China relations affects the oil market and what to expect in the future.
Trade: The US and China have been engaged in a trade war since 2018, imposing tariffs on billions of dollars worth of each other's goods. The trade dispute has hurt both economies, reducing their oil demand and creating uncertainty for oil producers and traders. In January 2020, the two sides signed a phase one trade deal, in which China agreed to buy more US goods, including energy products, over two years. However, China has fallen short of meeting its purchase commitments, partly due to the COVID-19 pandemic and partly due to its diversification of energy sources.
The Biden-Xi summit did not produce any breakthroughs on trade issues, but it did reaffirm the commitment to the phase one deal and the desire to avoid further escalation. This could provide some stability and confidence for the oil market, as it reduces the risk of new tariffs or sanctions that could disrupt trade flows and supply chains. However, it does not address the structural issues that underlie the trade imbalance, such as intellectual property rights, market access, and industrial subsidies. Therefore, trade tensions could flare up again at any time, especially if either side feels that the other is not honoring its obligations or respecting its interests.
Security: The US and China have also clashed over security issues in recent years, especially in the Asia-Pacific region. The US has challenged China's territorial claims and military activities in the South China Sea and the Taiwan Strait, while China has accused the US of interfering in its internal affairs and undermining its sovereignty. The US has also increased its support for Taiwan, which China considers a breakaway province that must be reunited with the mainland by force if necessary. The US has also imposed sanctions on Chinese officials and entities over human rights violations in Hong Kong and Xinjiang.
The Biden-Xi summit did not resolve any of these security disputes, but it did establish some mechanisms to prevent accidental or intentional military conflicts. The two leaders agreed to set up a hotline to communicate directly in case of emergencies, and to resume dialogue between their defense officials and military experts. They also agreed to abide by the existing agreements on managing air and maritime encounters in the region. These measures could help reduce the chances of miscalculation or escalation that could lead to a war or a crisis that could disrupt oil supplies or demand.
However, these measures do not address the fundamental differences in interests and values that drive the security competition between the two powers. The US sees China as a strategic rival that seeks to challenge its leadership and influence in the region and beyond, while China sees the US as a hegemonic power that seeks to contain its rise and interfere in its domestic affairs. Therefore, security tensions could persist or worsen in the future, especially over sensitive issues like Taiwan, which both sides regard as a core interest.
Climate: The US and China have also cooperated on climate change issues in recent years, recognizing their shared responsibility and opportunity to address the global challenge. The two countries were instrumental in reaching the Paris Agreement in 2015, in which they pledged to reduce their greenhouse gas emissions and support developing countries in their transition to low-carbon development. The two countries also announced new climate targets ahead of the COP26 summit in Glasgow in November 2021, in which they committed to peak their emissions before 2030 and achieve net-zero emissions by 2060 (China) or 2050 (US).
The Biden-Xi summit reaffirmed their cooperation on climate change, as they issued a joint declaration on enhancing climate action in this decade. The two leaders agreed to work together on several areas, such as reducing methane emissions, phasing out coal consumption, promoting clean energy innovation and deployment, enhancing transparency and accountability, and mobilizing finance for climate action. They also agreed to hold regular consultations and dialogues on climate issues at various levels.
These commitments could have positive implications for the oil market, as they signal a willingness and ability of the two largest emitters to take concrete actions to reduce their dependence on fossil fuels and accelerate their transition to renewable energy sources. This could lower the global oil demand growth and create more pressure for oil producers and exporters to diversify their economies and adapt to the changing energy landscape. However, these commitments also face many challenges and uncertainties, such as domestic political and economic constraints, technological and financial gaps, and international coordination and cooperation.
Conclusion: The US-China relationship is one of the most important factors that shape the global oil market, as the two countries are the largest oil consumers and have significant influence on the supply and demand dynamics. The recent summit between Biden and Xi was a positive step in stabilizing and improving the relationship, as they agreed to cooperate on some common issues and manage their differences on others. However, the underlying tensions and competition between the two powers remain, and they could flare up again at any time, creating uncertainty and volatility for the oil market. Therefore, oil producers, traders, and consumers should closely monitor the developments and trends in US-China relations and prepare for various scenarios and outcomes.
The US and China are the world's largest oil consumers, accounting for about 40% of global demand. Their economic growth, trade policies, and geopolitical actions have a major impact on oil prices and supply. In this article, we will examine how the current state of US-China relations affects the oil market and what to expect in the future.
Trade: The US and China have been engaged in a trade war since 2018, imposing tariffs on billions of dollars worth of each other's goods. The trade dispute has hurt both economies, reducing their oil demand and creating uncertainty for oil producers and traders. In January 2020, the two sides signed a phase one trade deal, in which China agreed to buy more US goods, including energy products, over two years. However, China has fallen short of meeting its purchase commitments, partly due to the COVID-19 pandemic and partly due to its diversification of energy sources.
The Biden-Xi summit did not produce any breakthroughs on trade issues, but it did reaffirm the commitment to the phase one deal and the desire to avoid further escalation. This could provide some stability and confidence for the oil market, as it reduces the risk of new tariffs or sanctions that could disrupt trade flows and supply chains. However, it does not address the structural issues that underlie the trade imbalance, such as intellectual property rights, market access, and industrial subsidies. Therefore, trade tensions could flare up again at any time, especially if either side feels that the other is not honoring its obligations or respecting its interests.
Security: The US and China have also clashed over security issues in recent years, especially in the Asia-Pacific region. The US has challenged China's territorial claims and military activities in the South China Sea and the Taiwan Strait, while China has accused the US of interfering in its internal affairs and undermining its sovereignty. The US has also increased its support for Taiwan, which China considers a breakaway province that must be reunited with the mainland by force if necessary. The US has also imposed sanctions on Chinese officials and entities over human rights violations in Hong Kong and Xinjiang.
The Biden-Xi summit did not resolve any of these security disputes, but it did establish some mechanisms to prevent accidental or intentional military conflicts. The two leaders agreed to set up a hotline to communicate directly in case of emergencies, and to resume dialogue between their defense officials and military experts. They also agreed to abide by the existing agreements on managing air and maritime encounters in the region. These measures could help reduce the chances of miscalculation or escalation that could lead to a war or a crisis that could disrupt oil supplies or demand.
However, these measures do not address the fundamental differences in interests and values that drive the security competition between the two powers. The US sees China as a strategic rival that seeks to challenge its leadership and influence in the region and beyond, while China sees the US as a hegemonic power that seeks to contain its rise and interfere in its domestic affairs. Therefore, security tensions could persist or worsen in the future, especially over sensitive issues like Taiwan, which both sides regard as a core interest.
Climate: The US and China have also cooperated on climate change issues in recent years, recognizing their shared responsibility and opportunity to address the global challenge. The two countries were instrumental in reaching the Paris Agreement in 2015, in which they pledged to reduce their greenhouse gas emissions and support developing countries in their transition to low-carbon development. The two countries also announced new climate targets ahead of the COP26 summit in Glasgow in November 2021, in which they committed to peak their emissions before 2030 and achieve net-zero emissions by 2060 (China) or 2050 (US).
The Biden-Xi summit reaffirmed their cooperation on climate change, as they issued a joint declaration on enhancing climate action in this decade. The two leaders agreed to work together on several areas, such as reducing methane emissions, phasing out coal consumption, promoting clean energy innovation and deployment, enhancing transparency and accountability, and mobilizing finance for climate action. They also agreed to hold regular consultations and dialogues on climate issues at various levels.
These commitments could have positive implications for the oil market, as they signal a willingness and ability of the two largest emitters to take concrete actions to reduce their dependence on fossil fuels and accelerate their transition to renewable energy sources. This could lower the global oil demand growth and create more pressure for oil producers and exporters to diversify their economies and adapt to the changing energy landscape. However, these commitments also face many challenges and uncertainties, such as domestic political and economic constraints, technological and financial gaps, and international coordination and cooperation.
Conclusion: The US-China relationship is one of the most important factors that shape the global oil market, as the two countries are the largest oil consumers and have significant influence on the supply and demand dynamics. The recent summit between Biden and Xi was a positive step in stabilizing and improving the relationship, as they agreed to cooperate on some common issues and manage their differences on others. However, the underlying tensions and competition between the two powers remain, and they could flare up again at any time, creating uncertainty and volatility for the oil market. Therefore, oil producers, traders, and consumers should closely monitor the developments and trends in US-China relations and prepare for various scenarios and outcomes.